How Closely Does Legal Manufactured Spend Cross with the Illegal World of Laundering?
May 28, 2013, 5:43 pm
#1
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How Closely Does Legal Manufactured Spend Cross with the Illegal World of Laundering?
Caught the this article earlier today where Liberty Reserve was forced off line after its founder, and six others, were accused of facilitating $6B in money laundering.
A brief excerpt from the article:
(And just to be clear: I do not consider churning/$ coins/VR/etc. for the accumulation of points, rewards, etc. illegal nor do I think the powers that be do either.)
But I still have the nagging question from reading the article: how closely does the churn philosophy - aka effectively buying money with money at a transaction cost as close to $0 as possible with the goal of having the funds eventually returned to the original form of payment while earning points in the process - mesh up against a nefarious person who seeks to obfuscate the presumably less than legal sources of their dubious funds?
...and to take a stab at answering my own question the big differentiator I see is transparency vs. cost.
That is to say, I think one engaged in churn would greatly prefer a transaction cost as close to zero as possible due to the narrow margin on points earned. Additionally, I do not see the churner as caring too much about his/her anonymity.
OTOH, I would guess the bad guys would care much more about ensuring their anonymity, even if it meant a higher transaction cost that might otherwise make point accumulation uneconomical...not that I imagine drug czars, shady arms dealers, assassins, etc. are too concerned about hitting spend thresholds on their co-branded credit cards.
I do also see both groups as equally caring about being able to do high volume amounts (although I could see the definition of "high volume" differing greatly between the two groups).
A brief excerpt from the article:
Cash could be put into the service using a credit card, bank wire, postal money order or other money transfer service. It was then "converted" into one of the firm's own currencies - mirroring either the Euro or US dollar - at which point it could be transferred to another account holder who could then extract the funds.
The service promised that payment transfers were "instantaneous" and it charged a maximum of $2.99 (£1.98) for each transaction. It also offered a private messaging facility which it said was "much more private and secure than email or instant messenger services".
(emphasis added)
What caught my eye was the ability to charge a (rewards) credit card and then have the funds remitted back, minus whatever fee(s) are assessed, to pay off the bill -- I have no clue what the fees were to to so, but the parallels between using a 3rd party to generate a charge, only to have the proceeds of such charge(s) returned struck an eerie parallel to the world of churn.The service promised that payment transfers were "instantaneous" and it charged a maximum of $2.99 (£1.98) for each transaction. It also offered a private messaging facility which it said was "much more private and secure than email or instant messenger services".
(emphasis added)
(And just to be clear: I do not consider churning/$ coins/VR/etc. for the accumulation of points, rewards, etc. illegal nor do I think the powers that be do either.)
But I still have the nagging question from reading the article: how closely does the churn philosophy - aka effectively buying money with money at a transaction cost as close to $0 as possible with the goal of having the funds eventually returned to the original form of payment while earning points in the process - mesh up against a nefarious person who seeks to obfuscate the presumably less than legal sources of their dubious funds?
...and to take a stab at answering my own question the big differentiator I see is transparency vs. cost.
That is to say, I think one engaged in churn would greatly prefer a transaction cost as close to zero as possible due to the narrow margin on points earned. Additionally, I do not see the churner as caring too much about his/her anonymity.
OTOH, I would guess the bad guys would care much more about ensuring their anonymity, even if it meant a higher transaction cost that might otherwise make point accumulation uneconomical...not that I imagine drug czars, shady arms dealers, assassins, etc. are too concerned about hitting spend thresholds on their co-branded credit cards.
I do also see both groups as equally caring about being able to do high volume amounts (although I could see the definition of "high volume" differing greatly between the two groups).
May 28, 2013, 6:22 pm
#2
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May 28, 2013, 8:27 pm
#4
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I read an article on this today and thought that Liberty was using some type of third-party (read: made-up) currency, a la Bitcoin? To me, this makes some difference. I do get some of the parallels noted with churning, but I think other elements are way different.
May 29, 2013, 6:31 am
#8
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We tend to talk the same paths as the laundry folks since we all deal with large flows of money. The difference is that we create new money (miles, cash back, etc), while they clean existing money. That said, I have spotted many a bank probably engaged in the laundry business when processing million of coins and money orders. A few telling signs are off the books fees charged for handling large deposits (kickbacks), an absence of SARs for cash deposits over 10,000 and multiple large cash deposits over weeks and etc..
May 30, 2013, 12:35 pm
#9
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There's exploiting loopholes that are fairly obvious and then there is laundering money. Until the bank society gets to the point where they can actually see everything we buy, then "spending" at a local drugstore will continue to earn points.
May 30, 2013, 8:36 pm
#10
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I think THAT would be definite violations of HIPAA and privacy protection laws!
May 31, 2013, 6:53 pm
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May 31, 2013, 6:55 pm
#13
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May 31, 2013, 8:26 pm
#14
Join Date: Apr 2013
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Different stores report different levels of data. From the Visa site mentioned in the post:
What does "Enhanced Data Level" mean?
Enhanced Data is transaction or customer information that is in addition to the data collected for all transactions. Not every merchant/supplier has the ability to collect this additional information as it requires enhanced technology and point of sale equipment.
There are two levels of "Enhanced Data"
Level II generally means suppliers capable of capturing non-financial information at the point of sale, such as sales tax and customer code
Level III generally means suppliers capable of collecting additional transaction information, such as merchant order number, freight/shipping amounts, order date, unit costs, and product codes. Level III data is divided into two types:
Level III-Summary Data is summary level information that applies to the transaction as a whole, such as order date and invoice number.
Level III-Line Item Detail is detail information about individual line items, such as product code, description, quantity, and unit cost.
Note: Level I data is the same for all transactions: merchant name, merchant location, transaction amount, Merchant Category Code (an industry classification), and transaction date.
Enhanced Data is transaction or customer information that is in addition to the data collected for all transactions. Not every merchant/supplier has the ability to collect this additional information as it requires enhanced technology and point of sale equipment.
There are two levels of "Enhanced Data"
Level II generally means suppliers capable of capturing non-financial information at the point of sale, such as sales tax and customer code
Level III generally means suppliers capable of collecting additional transaction information, such as merchant order number, freight/shipping amounts, order date, unit costs, and product codes. Level III data is divided into two types:
Level III-Summary Data is summary level information that applies to the transaction as a whole, such as order date and invoice number.
Level III-Line Item Detail is detail information about individual line items, such as product code, description, quantity, and unit cost.
Note: Level I data is the same for all transactions: merchant name, merchant location, transaction amount, Merchant Category Code (an industry classification), and transaction date.